The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a proposed regulation that clarifies and establishes a process-based safe harbor for ERISA fiduciaries when selecting Designated Investment Alternatives (DIAs) for participant-directed individual account plans – including options that incorporate alternative assets.
What the Rule Proposes
The rule affirms process, not outcome, as the prudence standard. Consistent with Tibble v. Edison and Whitfield v. Cohen (U.S. 2015 and 1988), prudence is judged at the time of the decision based on process – not hindsight performance results.
It establishes six safe harbor factors that, when objectively, thoroughly, and analytically considered, give rise to a presumption of reasonableness and entitle the fiduciary’s judgment to significant deference in any subsequent dispute:
| Factor | Key Fiduciary Consideration |
| Performance | Risk-adjusted returns over an appropriate time horizon, net of fees, compared to similar alternatives |
| Fees | Fees assessed relative to risk-adjusted returns and value delivered; lowest-fee option not required |
| Liquidity | Ability to meet any plan sponsor promises and participant expectations in a timely manner |
| Valuation | Adequacy and timeliness of valuation methodology; independence from conflicts of interest |
| Benchmarking | Use of a meaningful benchmark with similar mandates, strategies, objectives, and risks |
| Complexity | Fiduciary must understand the investment, or obtain qualified assistance, sufficient to discharge obligations |
Lastly, the rule removes categorical restrictions on investment types. Private equity, private credit, real estate, digital assets, commodities, infrastructure, or lifetime income solutions may be deployed into DC plans, provided fiduciaries satisfy the six factors. Sponsors are not required to offer alternatives. The Rule does not apply plan assets held in Self-Directed Brokerage Accounts (SDBAs).
Balanced Perspective for Plan Fiduciaries
| Potential Benefits | Potential Risks |
| Reduces litigation risk. A documented process aligned with the six factors provides presumptive prudence and deference, reducing costly ERISA class action risks. Expands participant access. This rule opens a pathway for DC participants to access alternative asset return premiums long available to institutional investors. Promotes fiduciary flexibility. Lowest-fee is not always best value – the rule supports a total plan value framework considering service quality and risk-adjusted net returns. | Valuation and liquidity risks. Many alternatives lack daily liquidity and are difficult to value, creating challenges for participant distributions – risks uniquely acute in DC plans. Complex and expensive fee structures. Performance fees, carried interest, and multi-layer expenses can erode net returns and complicate benchmarking comparisons. Monitoring obligations unsettled. The rule does not address post-selection monitoring. SCOTUS recently agreed to hear Anderson v. Intel on “meaningful benchmark” standard. Litigation risk reduced, not eliminated. Plaintiff attorneys may challenge whether six factors were genuinely applied – documentation quality remains a critical ongoing exposure. |
Fiduciary Action Steps
To position your plan consistent with the proposed regulation, plan fiduciaries should eventually: 1) Review your Investment Policy Statement (IPS) to confirm it contemplates the six safe harbor factors; 2) Document your investment selection process with specificity – meeting minutes, adviser reports, benchmark analyses, and fee comparisons mapped to the six factors; 3) Engage a qualified investment advice fiduciary when evaluating complex or alternative investment options and critically review their recommendations; and 4) Monitor for DOL final guidance, expected in the near term, which will address post-selection review obligations.
The information contained herein is provided for informational purposes only and does not constitute legal, tax, or investment advice. Plan fiduciaries should consult qualified legal counsel regarding their ERISA obligations. The information provided is from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Francis LLC does not offer personal legal advice.
